By John Drachman
“Volatility is picking up,” Lockwood Advisors’ CIO Matt Forester said this week. Whether one C-19 treatment trial succeeds or another vaccine attempt fails, the tug of war for the soul of the global equity markets is sure to escalate. However, whether our pandemic moment sends stocks to Great Depression Era depths or record gains every investor still needs to have a selling strategy to exit their stock positions successfully.
Here are five signals your equities may have reached their sell-by date:
- Your investment objective changed – and you need to rebalance a portfolio. If you’re among the 10,000 baby boomers turning 65 every day, you’re probably contemplating a shift from growth stocks to income-generating investments like annuities.With dreams of income and capital preservation on the horizon, selling stocks and redeploying assets to the income side of the equation should be undertaken gradually in a way to maximize gains and tax advantages.
- Your stock’s price reached your target. Despite our volatile moment, many stocks are breaking through to new highs. Just ask the lucky holders of Peloton Interactive, Moderna or Livongo Health which have all gained at least 30% over the past two weeks. Each of your own stock purchases should include an analysis of what the stock should be eventually worth with an eye out for selling it within a desired price range.
- The fundamental strength of your stock’s underlying business is deteriorating. Keeping track of a firm’s industry is important too. The travel industry for one is particularly hard hit.For industries less impacted by the pandemic, experienced analysts know how to read deep into financial statements for other signs of weakness.In a situation where a company is cost-cutting to stay competitive, consider exiting your position on an uptick before it drops further in value. Wanderlust Wealth Management’s Michael Tanney recommends setting up “a 20% stop-loss sell order” that can automatically be triggered at a set price to keep emotion out of the selling equation.
- You’ve spotted a better opportunity. Like the high-tech stationery bicycle Peloton abovebusinesses like Amazon and Netflix are in high demand for almost everyone sheltering in place. If other choices look better it makes sense – providing you do the research – to sell one position and buy another. Consider investing in a competitor if it has compelling growth prospects and trades at a lower price-to-earnings multiple.
- Selling for financial needs. Stocks like anything else you own are an asset. And there comes a time when people may need to cash in their stocks for any variety of reasons: from seed money for a new venture, payments for tuition, or purchasing a residence. While the decision depends on your financial situation rather than the stock itself, it’s always desirable to favor a plan over impulse selling.
The bottom line
Did you buy your stock through a financial advisor? Whether you purchased your shares in person or on the phone, chances are you can sell your shares the same way within 24 hours. Many financial advisors recommend examining your portfolio at least once a year anyway to make sure holdings are still aligned with your objectives. This will help ensure you keep buying low and selling high – while avoiding the consequences of selling without a strategy.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.
